USD/JPY

USD/JPY

11 May 2017Reading time: 3 minutes

The Japanese economy seems to have improved during the past few months, while the economic growth in the United States is under pressure.

 

During the past few months the JPY was one of the best performing currencies worldwide. According to analysts this is the result of the decreased nominal and real interest rate differential between the United States and Japan, but also because the overall sentiment was pushed down by the stock market.

 

Over 2016 Japan showed an economic growth of 1%, while the United States ended 2016 with 1,6% economic growth. However during the past few months the economic sentiment seems to have taken a turn for both countries. 

   

The Bank of Japan announced in late April that they have become more positive about the domestic economy. The central bank even spoke about a ‘modest growth’, which is a term they have not used since the financial crisis started in 2008. The Japanese economic growth is expected to end at 1.6% this year, which was previously calculated at 1.5%. For next year the central bank has raised their forecast of the economic growth from 1.1% to 1.3%. 

At the same time the Bank of Japan has announced to maintains the monetary policy and quantitative easing program which was introduced in 2013. Thus, the central bank will probably continue to annually buy JPY 80 billion worth of bonds.

Furthermore, the Bank of Japan lowered their inflation forecast for this fiscal year, which started in April, from 1.5% to 1.4%. Expectations by Bank of Japan are that this goal will be reached by April 2018. For the following year the inflation prospect is maintained at 1.7%. 

During the past period new concerns arose about the monetary policy of Japan but according to Haruhiko Kuroda from the Bank of Japan, the G20 and the International Monetary Fund are supporting the Japanese policy to realize the inflation target of 2%. However the consumer expenditures are low, which could render it less likely that companies increase their prices.

Meanwhile Japan has spoken with the United States in April about intensifying their economic relations. President Donald Trump has announced to execute several infrastructure projects and Japanese companies hope to take advantage of this. At the same time Japan expects the economic cooperation will lead to the weakening or even ending of the trade restrictions and currency policy demands of the United States. The future development, however, need to be seen.

 

For now there remains a lot of ambiguity about the economic plans of Trump.The American consumer expenditures rose during the first quarter with 0.3%, which is the lowest growth since the fourth quarter of 2009. The Personal Consumption Expenditures (PCE) price index, excluding food and energy, decreased with 0.1% during March. On an annual basis the PCE price index rose with 1.6%, while the Federal Reserve has set their target at 2%.
 
If the American economic data remains weak during the next months, analysts expect that the Federal Reserve could on the one hand adjust their prospect for the economy and on the other hand also postpone the interest rate hikes.

The United States could improve the economic sentiment when Trump manages to execute his economic reforms. In late April he presented his long-awaited tax proposition. It mainly contains reductions and may probably stimulate economic growth but at the same time will boost the American government debt. 


 

 

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26/06/2019 23:00:25